Case Law Details
Sunil Poonamchand Saraf Vs PCIT (ITAT Ahmedabad)
Ahmedabad: The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, has partially set aside a revisional order passed by the Principal Commissioner of Income Tax (PCIT) that had directed the Assessing Officer (AO) to mandatorily add an amount of Rs. 4,07,97,829/- as accommodation entries in the case of Sunil Poonamchand Saraf for the Assessment Year 2013-14. While upholding the PCIT’s jurisdiction to initiate revision proceedings, the Tribunal found the specific direction to make the addition without further verification to be beyond the scope of Section 263 of the Income Tax Act, 1961.
The case originated from the assessee’s return of income for AY 2013-14, declaring a total income of Rs. 1,99,610/-. Subsequently, the assessee’s case was reopened under Section 147 of the Act based on information identifying the assessee as a potential beneficiary of accommodation entries totaling Rs. 4,07,97,829/- from the Dishman Group of entities across five financial years (2011-12 to 2015-16). The reasons recorded for reopening specifically mentioned transactions of “fictitious loan” with M/s. Dishman Pharmaceuticals & Chemicals Limited for AY 2013-14, supported by evidence found during search and seizure action. An assessment order was eventually passed under Section 147 read with Section 144B on March 26, 2022, accepting the returned income without making any addition concerning the alleged accommodation entries.
The PCIT, reviewing the assessment order, observed that the AO had failed to adequately verify the issue of accommodation entries purportedly received from the Dishman Group, particularly the transactions linked to the assessee for AY 2013-14. Viewing the assessment order as erroneous and prejudicial to the interest of the Revenue due to this lack of inquiry, the PCIT initiated proceedings under Section 263 of the Act. After considering the assessee’s response to the show-cause notice, the PCIT concluded that the AO had not conducted a proper verification. Consequently, the PCIT set aside the assessment order with a direction to the AO to conduct a fresh assessment and, critically, to “make addition of Rs. 4,07,97,829/- on account of alleged accommodation entries obtained by appellant.”
Aggrieved by the PCIT’s order, the assessee appealed before the ITAT, challenging the jurisdiction of the PCIT under Section 263 and the mandatory direction to make the addition. The assessee argued that the PCIT was revisiting an issue for which the assessment was reopened and subsequently concluded without addition after due verification. It was contended that the reopening was based on portal information rather than independent inquiry, and the AO had effectively dropped the reassessment proceedings after considering the assessee’s objections. The assessee cited the Tribunal’s decisions in the cases of Balasinor Vikas Co-op. Credit Society Limited vs. PCIT (ITA No. 908/Ahd/2024, order dated October 1, 2024) and Jayantilal Pernach and Shah vs. PCIT (ITA No. 627/Ahd/2024, order dated December 16, 2024) to support the argument that the PCIT cannot invoke Section 263 merely to substitute a different opinion or issue mandatory directions for additions.
The Departmental Representative defended the PCIT’s action, asserting that the AO had not conducted any independent inquiry regarding the accommodation entries and the assessee’s connection with the Dishman Group for the relevant assessment year. It was argued that merely dropping the reopening proceedings did not constitute an independent opinion based on thorough verification.
The ITAT, after considering the submissions and reviewing the assessment record, noted that the reasons for reopening explicitly mentioned the alleged fictitious loan transactions. The Tribunal observed that the assessment order did not clearly indicate whether these specific aspects were verified and enquired into by the AO, nor was it clear if the assessee’s objections to the reopening were properly disposed of. Based on this, the ITAT agreed with the PCIT that the AO had not undertaken a proper independent inquiry into the matter, thus justifying the initiation of proceedings under Section 263.
However, the Tribunal found merit in the assessee’s alternate plea regarding the mandatory direction to make the addition. The ITAT held that the PCIT’s power under Section 263 is revisional, allowing the PCIT to set aside an erroneous and prejudicial assessment order and direct the AO to conduct a fresh assessment after proper inquiries and verification. The power does not extend to issuing mandatory directions to make specific additions, as this would preempt the fresh assessment process and deny the assessee the opportunity to present their case and evidence before the AO. The Tribunal emphasized that the fresh assessment must be conducted by the AO in accordance with the provisions of the Income Tax Act, based on the facts and evidence gathered.
Therefore, the ITAT partially allowed the assessee’s appeal. It upheld the PCIT’s decision to set aside the assessment order and direct a fresh assessment due to the lack of adequate inquiry by the AO on the issue of accommodation entries. However, it quashed the specific observation and direction by the PCIT that mandated the addition of Rs. 4,07,97,829/-. The Tribunal directed the AO to pass a fresh assessment order after properly verifying the details and evidences as per the law.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 29.03.2024, passed by the PCIT, Ahmedabad-1 for the Assessment Year 2013-14.
2. Theassessee has raised the following grounds of appeal :-
“1. That on facts, and in law, the Learned PCIT has grievously erred in exercising jurisdiction u/s.263 of the Act.
2. That on facts, and in law, the learned PCIT has grievously erred in revising and re-visiting the same issue for which reasons were recorded for re-opening of assessment, and after due verification, no addition was made in the assessment order passed u/s.147 of the Act.
3. That the learned PCIT has grievously erred in law, and on facts, insetting aside the assessment order passed u/s.147 of the Act, and in directing the AO to make addition of Rs.4,07,97,829/- on account of alleged accommodation entries obtained by appellant.”
3. The assessee filed return of income for the Assessment Year (A.Y.) 2013-14 on 27.07.2013 declaring total income of Rs.1,99,610/-. The Assessment Order under Section 147 read with Section 144B of the Income Tax Act, 1961 was passed on 26.03.2022 there by accepting return of income. The PCIT observed that the assessee was identified as end beneficiary of accommodation entry amounting to Rs.4,07,97,829/- from the entry operator Dishman Group. The case of the assessee was reopened after specific reasons recorded for reopening. Since the Assessing Officer has not made any addition, the PCIT found that the Assessment Order is erroneous and prejudicial to the interest of the Revenue and, therefore, issued notice under Section 263 of the Act dated 15.03.2024. The assessee filed reply which was taken into account. The PCIT held that since the Assessing Officer has not verified the issue of accommodation entries obtained from Dishman Group especially that of assessee’s transaction with Dishman Group for accommodation entries totalling to Rs.4,07,97,829/- as a beneficiary for five Financial Years e. F.Ys. 2011-12 to 2015-16 The PCIT, therefore, set aside the order of the Assessing Officer and directed the Assessing Officer to pass a fresh Assessment Order and make addition on account of accommodation entries obtained from entry operator Dishman Group.
4. Being aggrieved by the Order passed under Section 263 of the Act, the assessee filed appeal before us.
5. The Ld. AR submitted that the initiation of proceedings by the PCIT is without jurisdiction as the PCIT has given direction to the Assessing Officer to make the addition which is beyond the scope of Section 263 of the Act. The Ld. AR further submitted that there was several defects in opening reassessment proceedings of the assessee and after going through assessee’s submission along with assessee’s details, which clearly set out that the assessee did not have transactions with M/s. Sandeep Kumar & Brothers and Vegda Brothers which had final transactions with Dishman Pharmaceuticals & Chemicals The Ld. AR further submitted that the reopening was in respect of information available on Portal and not that of independent enquiry. In fact, the assessee has given the response to the Assessing Officer thereby objecting the reasons for reopening. The Assessing Officer dropped the reopening proceedings under Section 147 of the Act after taking cognisance of the assessee’s objection. Therefore, the Assessing Officer has rightly taken a view and the PCIT cannot invoke Section 263 of the Act as it is only revisionary power and not expressing second opinion. The Ld. AR relied upon the decision of the Tribunal in the case of Balasinor Vikas Co-op. Credit Society Limited vs. PCIT (ITA No.908/Ahd/2024 order dated 01.10.2024) and Jayantilal Pernach and Shah vs. PCIT (ITA No.627/Ahd/2024, order dated 16.12.2024). In alternate, the Ld. AR submitted that the PCIT cannot direct the Assessing Officer to make addition compulsorily while passing the order under Section 263 of the Act and to that extent the order passed under Section 263 of the Act be modified.
6. The Ld. DR submitted that the Assessing Officer has not at all taken an independent view and there was no enquiry at all in respect of the own benefit of the accommodation entry from the entry operator Dishman Group and the assessee’s connection for the A.Y. 2013-14.The Ld. DR relied upon the order under Section 263 of the Act passed by the PCIT.
7. We have heard both the parties and perused all the reverent material available on record. After going through the Assessment Order which was passed under Section 147 read with Section 144B of the Act, it clearly set out that reopening was more particularly for the reason set out in reasons for reopening as annexed by the assessee at page nos.7 to 10 of the Paper Book. The reasons for reopening have categorically mentioned in para 5 that the assessee had made transactions (fictitious loan) of 4,07,97,829/- with M/s. Dishman Pharmaceuticals & Chemicals Limited for A.Y. 2013-14 and there was clear evidences found during the course of search and seizure action. This aspect was not at all discussed by the Assessing Officer as well as there is no clarity in the notices whether these aspects were verified and enquired by the Assessing Officer. Thus, merely dropping reopening is not an opinion which is independent opinion. The contention of the ld. DR, therefore, is sustained. The Ld. AR submitted that every information was available on portal and the assessee has given his objections to the reopening on 15.02.2022, but after going through the same the assessee has taken all the technical and legal points along with merits which was not at all considered and commented upon by the Assessing Officer while passing the Assessment Order dated 26.03.2022 under Section 147 of the Act read with Section 144B of the Act. Thus, whether these objections were disposed of or not is also not clear from the Assessment Order. Therefore, the PCIT has rightly invoked Section 263 of the Act, but the observation and assertions of the PCIT directing to make addition of Rs.4,07,97,829/- on account of accommodation entries obtained from the entry operator Dishman Group is not justifiable as under Section 263 of the Act the PCIT has only powers of revision of Assessment Order and has to direct the Assessing Officer to pass a fresh Assessment Order after verifying the evidences and the details and not to compulsorily direct to make addition in the cases where the same is not called for as per the provisions of Income Tax Statute. Thus, this particular observation of the PCIT is quashed and only direction given to the Assessing Officer to pass a fresh Assessment Order sustains and the said fresh Assessment Order should be passed after verifying the details by the Assessing Officer as per Income Tax Act.
8. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 12th February, 2025.
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